Picks and Shovels (Investing Strategy)

Extracted Attributes

• Origin

  1800s California Gold Rush

• Primary Risk

  Dependency on the overall health and demand of the supported industry

• Core Philosophy

  Invest in suppliers and infrastructure rather than end-product producers

• Primary Benefit

  Risk mitigation through broad industry exposure and lower volatility

• Modern Proponent

  Chamath Palihapitiya

• AI Infrastructure Examples

  Semiconductors, Data Centers, Cloud Providers, and specialized hardware

Timeline

• Start of the California Gold Rush, which established the historical precedent for the 'picks and shovels' business model. (Source: Web Search Results)

  1848-01-24

• Chamath Palihapitiya advocates for the Picks and Shovels strategy in the context of AI infrastructure and open-source models during All-In Podcast Episode 165. (Source: Document fa6f8fa4-15ac-4405-9c29-3a4f4cfa393c)

  2024-02-07

Joy Global

Joy Global Inc. was a company that manufactured and serviced heavy equipment used in the extraction and haulage of coal and minerals in both underground and surface mining. The company had manufacturing facilities in Alabama, Pennsylvania, Texas, Wisconsin, Australia, Canada, China, France, South Africa, Poland and the United Kingdom. In 2017, Joy Global was acquired by Komatsu Limited and was renamed Komatsu Mining Corp. In 2016, sales of services accounted for 78% of revenues, while sales of equipment accounted for 22% of revenues.

Web Search Results

• Emerging industries require picks and shovels

  Incorporating pick-and-shovel businesses into a diversified portfolio can allow investors to benefit from broad trends while helping to maintain balanced risk profiles. Picks and shovels can be a valuable component of a well-rounded investment strategy, helping to provide some long-term stability and growth potential. [...] ### Selecting pick-and-shovel companies requires deep research. Pick-and-shovel investing requires rigorous research and a comprehensive understanding of an entire industry because success hinges on identifying companies that truly underpin a sector’s growth. A research-backed approach is also necessary to anticipate shifts in demand. Changes in technology, market needs or regulations can impact which pick-and-shovel operators thrive. [...] This “pick-and-shovel” approach focuses on essential suppliers and support businesses that are expected to benefit regardless of the ultimate fortunes of any single company. By investing in underlying component makers and service providers, I believe that investors can capitalize on emerging growth trends while managing the risk of investing in an individual company. ### The pick-and-shovel approach stretches across industries.

• Pick-and-Shovel Investing: Definition, Pros and Cons ...

  There are numerous advantages that individual retail investors can experience by incorporating the pick-and-shovel approach into their overall investing strategy. These include: [...] Pick-and-shovel investing is a strategy where you invest in the companies that provide the tools, services, or technology needed by a specific industry, rather than directly investing in the companies producing the main product or service of that industry. [...] A pick-and-shovel investing approach seeks to profit from the fundamental building blocks and supportive structures that underpin a growing industry, rather than directly betting on the success of the industry's end products or flagship companies. The pick-and-shovel investing approach can be applied to virtually any industry.

• Investing in the "Picks and Shovels" - Needham Funds

  As Portfolio Manager of the Needham Aggressive Growth Fund and Needham Growth Fund, I focus on identifying and investing in infrastructure providers, which I refer to as “picks and shovels,” for a portion of the Fund’s portfolio. This focus spans both traditional infrastructure companies and the evolving landscapes of life sciences research and manufacturing, and the digital era, which encompasses software, semiconductors, and data centers. [...] research on over 450 public companies in 20 sectors.

• Pick and shovel investing: what you need to know - IG

  Pick and shovel investing involves purchasing stocks that provide the goods, services or technology needed for an industry to produce a final product. This allows investors to gain exposure to an industry with lower risk by investing in suppliers rather than the stocks that make the end product. [...] The idea of pick and shovel investing comes from the US gold rush during the 1800s. Many people were searching for gold in the hope of striking it lucky but there was no guarantee who would be successful. The people selling the picks and shovels that are needed to search for gold fared much better because everyone hunting for the precious metal needed to buy these tools. [...] At the bottom line, if an industry struggles for a long time then so will the suppliers.

• Pick-and-Shovel Play: Overview, Pros and Cons, Examples

  To find "picks" and "shovels" today, look for a growth industry and identify the underlying technologies, inputs, or tools needed to support that industry or have it succeed. Then find the stocks of companies in those supporting industries. For instance, in the early days of the internet, while dotcom stocks were hot, the companies building out the infrastructure (of the internet e.g., routers, switches, fiber optic cables, etc.) would have been the "picks". [...] Pick-and-shovel plays can be advantageous for investors seeking to profit from a hot industry while keeping away from that industry directly, which may be quite volatile. While individual gold prospectors may strike it rich or simply strike out, the shovels and picks industry would see more steady and stable sales. Moreover, to keep with this example, the "shovel" company will likely also be selling to other users of its tools, such as to construction or gardening firms. [...] A pick-and-shovel play is a strategy for investing that consists of buying stocks in the tools or services an industry uses to produce a product, instead of in the product itself. In other words, an investor might invest in a supplier to an industry instead of investing in the major product producers within the industry.